The banking industry is broadly divided into two main divisions that are investment banking and commercial banking. Both deal with money and financial services but their functions are different with each other.

Investment bank is the bank having all setup with the end goal of closing commercial transactions but commercial bank is the bank all setup to give services to the investors.

In this article the contrasts between these banks are explained, which help the individuals to understand the main differences between these banks.

 Investment Bank

The investment bank is utilized to characterize a finance related establishment that executes complicated financial transactions. These banks interface the enormous companies with investors.

The banks offers its clients in various ways

  • Helping government and organizations in issuing securities
  • Offering the speculators in purchasing stocks,
  • Assistance with bonding
  • Counseling services.

The banks get its earning by charging fee for its consultative services. These banks assume a vital part in supporting organizations or government to take all around arranged choices and increase funds effortlessly.

 Commercial bank

The commercial bank refers to a foundation which is busy with giving financial and banking related services to the general population. In prior times, there was no that kind of organization where individuals can deposit their cash securely or take advances. Later on, banks are developed that fills in as a financier to every one of the nationals of the nation.

Commercial banks are possessed privately or publicly or by the blend of the two. The banks provide assist in the mobilizations of funds over the economy. The banks acknowledge deposits from the natives of the nation at nominal interest rate and utilize that cash in stretching out credit to different clients, charging more rate of interest from them

To understand how risk management varies across fields, explore the Difference between Risk and Uncertainty.

Investment Bank VS Commercial Bank

Aspect Investment Bank Commercial Bank
Meaning Investment bank alludes to the financial institution, that provides services such as brokerage services, underwriting of securities and so forth. Commercial bank refers to a bank that gives services such lending money, accepting deposits and so forth.
Manage Investment bank manages the selling and buying of stocks, investments, bonds and help different companies to go public with different offers. Commercial bank mostly manages the accounts include deposits or saving and provide loans to businesses or individuals.
Service Investment bank provides customer specific services. Commercial bank provides standardized services.
Customers Investment bank has fewer customers that are only few hundreds. Commercial bank has more customers that include millions of individuals or businesses.
Based on The performance of investment bank usually based on financial and stock market performances. The performance of a commercial bank usually based on demand for credit and country’s economic growth.
Risk Investment bank can be said as more risk tolerance because of business model and weakness of government instruction to this bank. Commercial bank can be said as less risk tolerant because of more government instructions and its duties.
Earnings The earning of investment bank comes from profit or commission on trading activities and fees. The earning of commercial bank comes from interest and fees.

Banking on Strategy: Which One Do You Need?

Imagine you’re running a startup that’s about to go public—you’d need an investment bank to underwrite your IPO, find investors, and manage the stock offering. But if you’re saving for a car or applying for a home loan, you’d go to a commercial bank. That’s the core difference: investment banks serve big financial moves, while commercial banks support day-to-day money management.

Commercial banks are strongly entrenched in everyday life. From opening a savings account to seeking a personal loan, they provide fundamental services for individuals and small firms. They are accessible, and their risk is less, so they are the first choice for everybody.

Investment banks, however, are focused on corporate finance, high-risk projects, and international market transactions. Their services are tailored, extremely strategic, and usually transact in millions—if not billions—of dollars. These banks do not serve the general public per se but play a crucial role in the development of large organizations and governments.

Both are essential within the financial system. One facilitates access to finance and economic participation, and the other fuels capital creation and financial innovation. The decision between them is a function of your financial objective—are you attempting to build a business empire or establishing your first savings account?

For more learning on financial systems and their types, read the Difference between Fixed Exchange Rate and Flexible Exchange Rate.